An Oligopolistic Theory of Regional Trade Agreements

Christian Soegaard

ERSA conference papers from European Regional Science Association

Abstract: Why are trade agreements regional? I address this question in a model of oligopoly featuring product variety. Tariffs have the effect of manipulating a country's terms of trade and shifting profits towards the domestic market at the expense of foreign trade partners. Countries endogenously form into regional trade agreements or global free trade in a framework where any agreement must be sustained by repeated interaction. A crucial parameter determining the degree of regionalism is product variety. I demonstrate that for a given trade cost and discount factor, increases in product variety leads to greater scope for global free trade relative to regional trade agreements.

Keywords: trade policy; self-enforceability; trade costs; regional trade agreements. (search for similar items in EconPapers)
JEL-codes: F13 F15 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-int
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https://www-sre.wu.ac.at/ersa/ersaconfs/ersa14/e140826aFinal00598.pdf (application/pdf)

Related works:
Working Paper: An Oligopolistic Theory of Regional Trade Agreements (2013)
Working Paper: An Oligopolistic Theory of Regional Trade Agreements (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwrsa:ersa14p598

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